Rules Governing Territorial Jurisdiction for the Recovery of Debts by Banks and Financial Institutions

The recovery of outstanding dues by banks and financial institutions in India is a complex procedural journey governed by a specialized hierarchy of laws. Central to this process is the determination of the correct forum—a decision that can either expedite the recovery or lead to costly delays and dismissals. For legal practitioners and financial institutions, the primary challenge is often answering the question: What is the territorial jurisdiction for the recovery of debts in different legal contexts?

Depending on whether a bank is filing an Original Application (OA) under the Recovery of Debts and Bankruptcy Act or a borrower is challenging a seizure under the SARFAESI Act, the rules for determining the correct court vary significantly.

Jurisdiction under the Recovery of Debts and Bankruptcy Act, 1993 (DRT Act)

The DRT Act was enacted to ensure the speedy recovery of debts due to banks and financial institutions, typically for amounts exceeding ₹20 lakhs. Under Section 3 of the Act, the Central Government establishes Debts Recovery Tribunals (DRTs) with specific territorial limits. However, the application of these limits is not always rigid.

The Role of the Cause of Action

The primary determinant for filing an Original Application (OA) under Section 19(1) is where the cause of action wholly or partly arises. This is not limited to a single location but is viewed as a bundle of facts. Relevant factors include:* The location of the banking branch that disbursed the loan.* The registered office of the borrower (defendant).* The location of secured assets intended for enforcement.

For example, if loan sanction discussions took place at a regional office in one city while the branch was in another, both may contribute to the cause of action. In one instance, the DRT Kolkata held jurisdiction because the relevant documents indicated that discussions regarding the loan sanction occurred at the regional office in Kolkata, thus establishing jurisdiction 2024 0 Supreme(Cal) 1440.

Concurrent vs. Exclusive Jurisdiction

A common misconception is that Section 3 notifications grant exclusive jurisdiction to a single tribunal. In reality, if a part of the cause of action arises within the limits of multiple tribunals, they may hold concurrent jurisdiction. As noted in case law, The fact that a part of cause of action arises within the limit of the jurisdiction of more than one tribunal... would confer jurisdiction on all such Tribunals 2021 0 Supreme(All) 1512.

Furthermore, the DRT Act generally holds an overriding effect over other recovery mechanisms. This has led courts to quash certificate proceedings initiated under other state acts (such as the Bihar and Orissa Public Demands Recovery Act, 1914), affirming that any matter relating to recovery of debts due to Banks and financial institutions etc. is cognizable before Tribunal 2023 0 Supreme(Jhk) 637 and 2023 0 Supreme(Jhk) 275.

Filing and Jurisdiction under the SARFAESI Act, 2002

While the DRT Act focuses on the recovery of the debt, the SARFAESI Act provides a mechanism for secured creditors to enforce security interests without court intervention. However, borrowers often challenge these measures via Section 17 applications.

Asset-Based Jurisdiction

The rule for Section 17 applications is primarily tied to the location of the secured asset. Following the Section 17(1A) amendment, borrowers have greater flexibility. Specifically, Petitioners are entitled to file an application under Section 17(1) of the SARFAESI Act, on the file of any one of the Debts Recovery Tribunals within whose jurisdiction any one of the secured assets is located 2017 0 Supreme(P&H) 809.

This flexibility extends to cases involving a single debt secured by multiple assets across different jurisdictions. Borrowers are not required to bifurcate their challenges; a single application in any DRT covering at least one asset is sufficient 2019 0 Supreme(Cal) 319. Consequently, the tribunal that has jurisdiction over a few properties is obliged to exercise its jurisdiction over all the properties of borrower (even though not falling under its jurisdiction) arising out of same cause of action 2017 0 Supreme(P&H) 2804.

High Court Oversight and Writ Jurisdiction

When DRT orders are challenged in High Courts, the territorial rules shift. A critical distinction exists between the location of the DRT and the location of the cause of action.

Article 227 and Writ Petitions

The supervisory jurisdiction of a High Court under Article 227 is strictly limited to tribunals within its own territorial boundaries. For instance, a challenge to a Patna DRT order cannot be filed in the Calcutta High Court simply because the appeal was routed through the Kolkata DRAT 2002 0 Supreme(Cal) 194.

Similarly, for writ petitions, the High Court where the cause of action arises—such as where the asset is located or where the borrower resides—is the competent forum, regardless of where the DRT is situated 2022 0 Supreme(Telangana) 261.

Intersections with Other Legal Frameworks

Debt recovery often overlaps with other statutes, creating potential jurisdictional conflicts:

• IBC vs. State Laws: The Insolvency and Bankruptcy Code (IBC) generally overrides repugnant state laws. For example, notifications suspending debts under state relief acts do not typically halt Section 7 proceedings under the IBC 2017 8 Supreme 710.
• SARFAESI vs. Rent Control: The SARFAESI Act does not override the rights of protected tenants. Evictions must still follow the due process of state Rent Control legislation 2016 3 Supreme 549.
• Admiralty Law: Actions in rem (against the ship) under the Admiralty Act, 2017, can proceed even during IBC liquidation, as these actions are directed against the vessel rather than the debtor 2020 0 Supreme(Bom) 288 and 2020 0 Supreme(Bom) 586.
• Criminal Recovery: It is a settled principle that criminal proceedings are not a substitute for civil recovery. In criminal prosecutions, a complainant cannot seek recovery of money of which he was deprived 2012 0 Supreme(SC) 90.

Summary of Jurisdictional Benchmarks

| Context | Primary Filing Trigger | Key Legal Principle || :--- | :--- | :--- || DRT Original Application | Cause of Action | Loan disbursement or registered office location 2021 0 Supreme(All) 1512 || SARFAESI Sec 17 Appeal | Secured Asset Location | Jurisdiction over one asset extends to all assets of the same debt 2017 0 Supreme(P&H) 2804 || High Court Writ | Cause of Action/Asset | Location of the dispute, not the seat of the DRT 2022 0 Supreme(Telangana) 261 || Criminal/NI Act | Cheque Presentation | Jurisdiction where the cheque is presented for collection 2025 0 Supreme(SC) 460 |

Conclusion

Navigating the territorial jurisdiction for debt recovery requires a nuanced understanding of whether the action is driven by the cause of action or the location of the asset. While the DRT Act allows for concurrent jurisdiction based on a bundle of facts, the SARFAESI Act prioritizes the location of the secured property to prevent fragmented litigation. Because laws and judicial interpretations evolve, these principles should be applied generally to the facts of each case, and professional legal counsel should be sought for specific litigation strategies.